How is the foreign trade balance measured? Trade balance. What is a negative trade balance
Foreign trade balance of the country- the ratio of the value of exports and imports of goods for a certain period of time. Foreign trade balance includes goods transactions actually paid for and carried out on credit. The foreign trade balance is compiled for individual countries and groups of states.
The balance of trade has a balance. Trade balance- this is an annual indicator (quarterly and monthly are possible) information about the country’s foreign trade transactions. If the trade balance has a positive balance, this means that in monetary terms (commodity volume is converted into money) more goods were sent abroad (exports) than received from other countries (imports). If the balance is negative, then the import of goods prevails over the export. A positive trade balance indicates the demand for a given country's goods on the international market, as well as the fact that the country does not consume everything it produces. A negative trade balance indicates that a country, in addition to its own goods, also consumes foreign goods. A negative trade balance in countries such as the USA and Great Britain helps contain inflation and maintain high level life due to the transfer of labor-intensive production outside the state.
In underdeveloped countries, a negative trade balance indicates the uncompetitiveness of export sectors of the economy, which often leads to devaluation (depreciation) of money in such countries due to the fact that they cannot pay for import purchases. Countries such as the US and UK have capital-intensive and high-tech sectors of the economy, which attract significant amounts of capital from around the world in the form of portfolio or direct investment. However, due to the lack of competitiveness of export industries, these countries are forced to cover the bulk of the trade deficit by issuing private and government debt instruments.
Merchandise Trade Deficit (Balance) - trade balance, or otherwise the balance of trade in goods, for the United States for many years recent years this is a deficit, so the Trade Deficit reduction is often specified immediately. The Merchandise Trade Report details monthly merchandise exports and imports into the United States. This is a very important indicator that characterizes both the net movement of goods and the monetary and foreign trade policy of the state. The indicator is measured as the difference between exports and imports in in absolute terms in billion dollars: Merchandise Trade Deficit (USD bln.) = Export - Import.
Food
Raw materials & industrial supplies (Raw materials and industrial supplies) +
Consumer goods (Consumer goods) +
Autos (cars) +
Capital goods (Inputs of production) +
Other merchandise.
Foods and Feeds+
Industrial Supplies+
Capital Goods (Input Products)+
Ex Autos (Car Export)+
Autos and Parts (Auto and Parts)+
Consumer Goods+
Other Merchandise.
However, official reports and subsequent analysis may highlight particularly important components, for example:
Total Deficit
Ex Petroleum (gasoline export)
Ex Autos (car export)
2) By country.
Relationship with other indicators. One of the few indicators that has not an indirect, but a direct impact on the exchange rate, since it reflects the movement of funds between countries for goods and services provided. However, the paradox is that the reaction of the exchange rate to this report is minimal due to technical and structural reasons, namely: the report is too late from the time when the real movement of values occurred, in addition, the movement of capital due to trade relations is several times less capital movement associated with the operation of credit and stock markets, and the cycles of these two flows, as a rule, do not coincide. When the trade deficit increases, the demand for foreign currency increases and the value of the local currency falls. The trade balance is influenced by indicators of domestic demand, since they determine the dynamics of imports, as well as the exchange rate itself, which adjusts the nominal value of import receipts in local currency.
Features of the indicator behavior. For foreign exchange markets, the overall balance is a key indicator. At the beginning, exports are analyzed, because it has a direct impact on the value of growth in the economy. Imports reflect demand for goods in the United States. The increase in imports reflects the formation of inventories, which may indicate a possible subsequent slow increase in sales. In the following, specific product groups. There are several special exports and imports that can significantly affect the trade balance. For example, oil for imports (especially the increase in its price) and aviation for exports. Depending on the commodity category, a widening deficit created by a small drop in exports could push fixed income markets in either direction. Unlike other economic sectors, there is no consistent relationship between the trade balance and the phases of the business cycle.
The foreign trade balance is the ratio of the cost of import and export of products for a particular time period. Along with actually paid transactions, transactions carried out on credit are also included in the foreign trade balance. In case of actually paid commodity transactions, the foreign trade balance is part of the state's balance of payments. When transactions are carried out on credit, the foreign trade balance is included in the country's settlement balance.
The foreign trade balance is formed both for individual countries and for groups of countries. The foreign trade balance is called active if the cost of exported goods exceeds the cost of imported ones. In the case when the cost of imported goods exceeds the cost of exported goods, the foreign trade balance is passive.
A positive foreign trade balance indicates the demand for goods of a particular country in world markets or that the state does not consume all the goods it produces. A negative balance indicates that in addition to its own goods, the country also consumes foreign goods.
The difference between the value of imported goods and exported products is called the balance. Trade balance is an annual indicator (in some cases, quarterly) of a country's foreign trade transactions.
A positive balance (or a decrease in the negative balance) is a favorable factor for the growth of the national currency.
The foreign trade balance is one of the few indicators that has not an indirect, but a direct impact on the exchange rate, since it reflects the movement of funds between countries for goods and services provided. However, the paradox is that the reaction of the exchange rate to this report is minimal due to technical and structural reasons, namely: the report is too late from the time when the real movement of values occurred, in addition, the movement of capital due to trade relations is several times less capital movement associated with the operation of credit and stock markets, and the cycles of these two flows, as a rule, do not coincide. As the foreign trade deficit grows, the demand for foreign currency increases and the exchange rate of the local currency falls. The foreign trade balance is influenced by indicators of domestic demand, since they determine the dynamics of imports, as well as the exchange rate itself, which adjusts the nominal value of import receipts in local currency.
For foreign exchange markets, the overall balance is a key indicator. At the beginning, exports are analyzed, because it has a direct impact on the value of growth in the economy. Imports reflect the demand for goods in a country. The increase in imports reflects the formation of inventories, which may indicate a possible subsequent slow increase in sales.
Subsequently, specific product groups are analyzed. There are several special exports and imports that can significantly affect the trade balance. For example, oil for imports (especially the increase in its price) and aviation for exports. Depending on the commodity category, a widening deficit created by a small drop in exports could push fixed income markets in either direction. Unlike other sectors of the economy, there is no consistent relationship between the foreign trade balance and the phases of the business cycle. During downturns in net exports, other indicators can either improve or worsen. The main reason is the different synchronization of business cycles at home and abroad, as well as the duration of cycle changes at home and abroad. Exports show consistent growth during the expansion phase of a country's business cycles, but this relationship again breaks down during recessions and recoveries.
Trade deficit shows the excess of imports relative to exports, that is, this means that the country consumes more foreign goods than it exports its own.
What does it mean to have a trade deficit?
More often negative trade balance is perceived negatively, however, in countries with an import orientation, for example in the USA or England, this state of affairs rather indicates that the labor-intensive and harmful production of these countries has been transferred beyond its borders. This approach allows us to maintain a high standard of living and normal inflation in the country.
To understand, it is worth paying attention to the composition as a whole. If a state has a raw material specialization, then it is quite possible that the trade balance will be deficit, since it independently provides itself with everything necessary, while exporting a minimum amount of goods. Such a state imports mainly industrial products, which are higher in cost than food and other goods.
How does the publication of data on the trade deficit affect the exchange rate?
Trade deficit is an important indicator of the state of the country's economy, which is why investors constantly monitor reports on its condition.
A positive balance (or a decrease in the negative balance) is a favorable factor for the growth of the national currency. A small trade deficit is common for countries with stable economies, and can arise from time to time without causing harm to economic development. However, long periods of imbalance between exports and imports can create significant economic strain. At the same time, a prolonged trade deficit could also weaken the country’s national currency in the Forex market.
The purpose of this article is to study the theoretical aspects of the trade balance, its role, main items and factors influencing it. To achieve this goal, it is necessary to solve the following tasks: - consider the concept and essence of the trade balance; - study its main features.
- Improving the formation of a capital repair fund in apartment buildings
- Regulatory and legal regulation of issues of assessing the quality of provided state (municipal) services in Russia
The relevance of this topic cannot be exaggerated, since the trade balance is a mirror image economic condition countries.In modern conditions It is difficult to predict or actively participate in the international monetary and financial system without taking into account the role of the country's trade balance.
The purpose of this article is to study the theoretical aspects of the trade balance, its role, main items and factors influencing it.
To achieve this goal, it is necessary to solve the following tasks:
- consider the concept and essence of the trade balance;
- study its main features
Trade balance(Trade Balance, TB) - part of the balance of payments that characterizes the country’s trade relations with other states. Its components are the export and import of goods. The trade balance is the difference between the amount of exports and the amount of imports of a country's goods. The trade balance characterizes, first of all, the competitiveness of a country's goods abroad. The predominance of exports over imports (positive trade balance) indicates that there is an influx of foreign currency into the country, and the exchange rate of the national currency rises. Conversely, the predominance of imports over exports (negative balance or trade deficit) means low competitiveness of the country’s goods abroad. (1, p.3)
The beginning of the emergence of the concept of “balance of payments”, according to its modern understanding, can be considered the appearance of the term “balance of trade”. It was first used by Edward Misselden in his treatise “The Circle of Trade” (1623), where the first calculations of the balance of trade for England for 1621 were made.
The concept of “trade balance” is further developed in the works of Thomas Mann. In the book “The Wealth of England in Foreign Trade” (1664), the author introduces the concept of “general balance of trade.” T. Mann notes that deficits in foreign trade with some countries can be compensated by a positive balance with other countries, therefore the assessment of foreign trade activity should be carried out on the basis of the overall trade balance.
The term " balance of payments"was first used by the English economist, one of the largest representatives of late mercantilism (from Italian mercante - merchant, merchant), the first school of bourgeois political economy) James Stuart (1712-80). In his work "Inquiries into the Principles of Political Economy" (1767), he was the first to point out and examine in detail the relationship between foreign trade and capital movement. D. Stewart defines the balance of payments as an independent concept, which consists of (7, p. 57):
- Expenses of citizens abroad.
- Payments of debts, principal and interest to foreigners.
- Providing cash loans to other countries.
The role of the trade balance in the Russian economy
In Russia, a positive trade balance has been observed throughout the entire history of statistics. The attitude towards a country’s trade balance surplus or deficit depends on a number of factors that determine the position of this country in the world economy, characteristics business connections with partners, characteristics and share of the main items of the trade balance, etc.
Thus, the attitude towards a positive trade balance in Russia is quite contradictory. Despite the increasing gap between exports over imports, which forms a positive trade balance, the qualitative characteristics of this surplus cannot but cause concern among economists for at least a decade.
The main source of surplus and the main export item are natural resources actively exported from Russia. And the specific growth in the export of natural resources shows growth dynamics throughout the entire period of statistical observation. As we can see, quantitative growth in exports has been observed throughout the last decade. The fall in exports and imports of goods in monetary terms in 2009 was due to the active phase of the global financial and economic crisis, but within 2 years the fall was recouped, and trade indicators at the end of 2011 reached record levels. It is also worth paying attention to the fact that, as such, the export of natural resources did not fall quantitatively during the crisis. (paraphrase of source 2, p. 15)
Conclusion
In conclusion, it should be noted that the trade balance is one of the main tools for macroeconomic analysis and forecasting.
Trade balance is the relationship between the sum of prices of goods exported by a country or group of countries and the sum of prices of goods imported by them for a certain period of time, for example, for a year, quarter, month. In other words, the trade balance is the exports and imports of a country for a certain period or date.
If the cost of exporting a country's goods exceeds the cost of importing them, then the trade balance is active. If the cost of imports exceeds the cost of exports, then such a trade balance is passive. If the cost of export and import coincides, a net balance is formed. A country with a passive trade balance must cover the deficit by spending various balance of payments receipts, in particular income from the transportation of foreign goods on its means of transport or through its territory, interest and dividends from capital investments abroad, the influx of foreign capital, foreign loans, the use of reserves foreign currencies and gold exports. A trade surplus largely characterizes the favorable economic position of a given country and is one of the important indicators of the degree of dependence of its economy on foreign markets, on the state of the market, international competition, as well as political dependence on other states.
Balance of payments data reflects how trade with other countries developed during the reporting period, which directly affects the level of production, employment and consumption, how much income was received from non-residents and how much was paid to them. These data allow us to trace the form in which the attraction took place. foreign investment, whether the country's external debt was repaid on time or whether there were arrears and restructuring, as well as how residents invested in the economies of other countries, how the Central Bank eliminated payment imbalances by increasing or decreasing the size of its foreign currency reserves.
The balance of payments is actively used to determine fiscal and monetary policies, protectionist measures, as well as when making decisions on regulating the domestic foreign exchange market and the exchange rate. Based on the results of the balance of payments, further decisions are made in the field of the country's economic policy.
A distinctive feature of Russia from other countries with transitive economies is its enormous resource potential, which allows it to maintain an active current account balance, mainly due to a positive trade balance.
For Russia, financing the capital account deficit of the balance of payments is more relevant than the financing of the current account balance. However, this cannot be called a plus for the economy, since the positive current account balance is a reflection of Russia’s low investment attractiveness.
References
- Litvintsev N.N. Trade balance. Textbook edited by Litvintsev, 1st edition, 2010.240 p.
- Aleksashenko S. The landslide is over, the crisis continues // Questions of Economics. 2009. - No. 5. - P. 4 - 20.
- Buglai V. B., Litvintsev N. N. International economic relations: Textbook. manual/Ed. Litvintseva N.N. - 2nd ed. - M.: Finance and Statistics, 2008. - 160 p.
- Bulletin of the Bank of Russia. 2012. - No. 48 - 49.
- Zhuravlev S. Stopping without a requirement // Expert. 2012. - No. 2. - P. 28 - 33.
- Ivashevsky S. N. Macroeconomics.—Moscow, 2010
- History of economic doctrines. /Under. ed. V. Avtonomova, O. Ananina, N. Makasheva: training manual. - M.: INFRA-M, 2007. - 784 p.
